IENE Hydrocarbon Exploration and

Production in the Adriatic,

the Black Sea and the East Mediterranean

E&P in Italy

Peter Shiner

E&P in Italy

1. Petroceltic

2. E&P in Italy – Technical overview/ remaining potential

– Regulatory framework

– Fiscal regime

– Competitive landscape

– Infrastructure

3. Petroceltic Projects

Petroceltic: Building a long term regional champion

• Core development and production assets in

Algeria, Egypt and Bulgaria with production

of 24.5 Mboepd(1)

• High impact exploration in Kurdistan Region

of Iraq, Romania, Egypt, Italy and Greece

• 2P Reserves of 378MMboe, 2C Resources

of 52MMboe and unrisked prospective

resources of 1,570MMboe (2)

• Active exploration programme over next 18

months, 8 firm wells and 4 contingent wells

• 2013 refinancing provides financial support

for long term strategy

• Algeria project supports long term

perspective

(1) Numbers are 1H, 2013, working interest basis

(2) At 31 December 2012 2

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Petroceltic: Strong operational track record

• Full cycle operations from seismic to

production

• Onshore & Offshore

• Commitment to managing operations through:

• Certified HSES management systems

• Positive interactions with host

communities

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After Bertello et al 2010

After Bertello 2008

• Complex geology -> variety of plays

• Creaming curves indicate

• Big oil discoveries can be expected

• Mature for gas – though continued

scope for success

E&P in Italy: a technical review

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After Michelotti 2004

E&P in Italy: what’s left?

• Southern europe’s largest oil & gas producer

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E&P in Italy: Regulatory Framework

• Licenses issued by Ministry of

Economic Development

• Stringent EIA need approving at

several points in the process

• Offshore authorized by

Environment Ministry

• Onshore by the Regions

• Open Door licensing regime

• 90 day period for competing

applications

• Licence terms standardized

• 6+3+3 year exploration

phasing

• 20+10 year production

concessions

• Deepwater areas gradually being

opened up

• Italy historically seen as highly favourable fiscal regime

– Low state take & stable

• Number of recent changes -> increased state take of 55-60%

• System is a tax-royalty system with ground rent paid for the licence

• Royalty depends on gas, fluid & location

– Regional Tax (IRAP): 3.9% to 5.0% depending on region (Lazio: 4.97%, Lombardy

& Piedmont: 3.90%))

Royalty

Threshold

Production

(mmbo/ yr)

Royalty

Threshold

Production

(bcf/ yr)

Onshore 10% 0.15 10% 0.88

Offshore 7% 0.38 10% 2.83

Oil Gas

Assuming 40° API oil.

Onshore Oil & Gas royalties include 3% contribution to the fondo

idrocarburi

• Direct Taxes consist of 2 elements:

− National Corporate Income Tax

(IRES): 27.5%

− Robin Hood Tax paid by energy

companies: 6.5% when revenue

> € 3 mln p.a. and taxable

income > € 0.3 mln p.a.

E&P in Italy: Fiscal Regime

E&P in Italy: Competitive Landscape

• ~ 30 Operators & 10 Non-Operators

• Integrated majors

• Mid-cap & junior E&P

companies

• Energy utilities

• Eni dominant position

• Government share ~ 30%

• Activity levels at historic low

• Permitting/ licence to operate

issues

• Monti Government National Energy

Policy (SEN) Review in 2012

• Aims to double domestic

production

• Simplify permitting process

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E&P in Italy: Infrastructure

• Highly developed infrastructure for

oil & gas

• Gas

• > 33,000km high & medium

pressure pipelines

• Access to network liberalized

• 90% demand imported with

significant developments

expected in import

infrastructure

• Oil

• Export pipelines developed for

major discoveries on Po Valley

& Basilicata

• Europe’s 2nd largest refining

industry: 14 refineries & 18

tanker ports

• Petroceltic operated asset (55% WI)

discovered in 1992

• Gross 2C contingent resource 95 MMbbls

• 65 metre oil pay zone identified in

Cretaceous dolomites, but not tested

• Key technical issues: fluid viscosity and

reservoir deliverability

• Planned Elsa-2 well to establish

productivity and fluid type

• Stakeholder consultation & resubmit

environmental application to drill appraisal

well

• Highly prospective regional acreage

position provides multiple follow-up

opportunities

Petroceltic Italia Projects: Elsa field appraisal

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Elsa

34-95-187

MMboe CR

Carpignano Sesia

prospect

Villafortuna

250 MMboe

• Thrusted structure identified to west of producing 250MMbbls

Trecate / Villafortuna field and of similar scale

• Triassic fractured carbonate targets - P50 prospective

resources 230 MMbbls

• Stakeholder consultation, permitting and well planning in

progress

• Request for further suspension of the licence lodged to

identify a new well location and drilling plan

• Petroceltic 47.5%, Eni (Operator) 47.5%, Condotte 5%

Petroceltic Italia Projects: Carpignano Sesia Exploration

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E&P in Italy: Summary

• Opportunities

– High remaining resource potential

– Attractive fiscal terms

– Mature and liberalized infrastructure

– Strong local market

– Well developed service sector

• Threats: “time to maket”

– Complex permitting process

– “Licence to operate”

• Petroceltic looking for growth

opportunities in the region

– building on Italian/ Black Sea

experience

– Forthcoming award of Patraikos to

Hellenic-Petroceltic-Edison JV is a

first step!

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